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May 2013
Assurance rather than insurance - Swedish retail chain ICA shares its CSR experiences in China
By Anna Kiefer
From left: Maria Smith, Senior Manager Environment & Social Responsibility
of ICA Sweden, Cindy Chan, Social Compliance Manager and Thommy
Järlefelt, Managing Director of ICA Global Sourcing. Photo: ICA
Swedish retail chain ICA has worked with Corporate Social
Responsibility (CSR) for many years. In order to source in a
more socially responsible way they established an audit
function in China in 2008. Today they have plenty of experience
and well developed routines for auditing suppliers. They have
recorded some improvements in supplier responsibility
performance since they started, but there is still plenty to do. A
key to success is to focus on supporting your suppliers in
developing good CSR, not just threaten to disqualify them.
Embassy of Sweden 2(7) Beijing
Non-food sourcing used to be largely done from Sweden, but the company
gradually realized the importance of local presence. Photo: ICA
Corporate Social Responsibility (CSR) is a central part of customer
expectations. “This makes it particularly important for ICA”, says
Maria Smith, Senior Manager Environment & Social Responsibility of
ICA Sweden, “but regardless of customer demand CSR is fundamental
to the ICA brand, taking responsibility is a cornerstone for us.”
ICA was mainly selling food until around 1998-2000. With the
expansion of ICA Maxi stores with a broader range of products, non-
food products became increasingly important for ICA. Non-food
sourcing used to be largely done from Sweden, but as debate and
focus on CSR intensified in Sweden in the early 2000’s, the company
gradually realized the importance of local presence.
Nowadays ICA non-food mainly sources from four offices in Asia:
Hong Kong, Shanghai, Bangladesh and Vietnam. Hence, in 2008 an
onsite audit function was established, led by Cindy Chan, Social
Compliance Manager who has a long background in CSR auditing. It
has taken time for suppliers to understand that they needed to adopt
CSR. You need a bit of patience.
“Auditing is a local trade”
Today, most of the Chinese factories are audited by ICA China audit
team. Apart from this, ICA also utilizes local auditing resources from
third party companies to fulfil the audit needs in other Asian
countries.
Embassy of Sweden 3(7) Beijing
ICA uses a scale ranging from good to unacceptable. An unacceptable factory
must improve before the next audit for continued business with ICA. Photo:
ICA
There is a standard audit workflow starting with a management
interview followed by a factory and dormitory tour. Afterwards, there
is detailed review of documents and records such as payroll, age
documents, production records etc. and finally making interviews
with workers. Conclusions are drawn from the evidences collected
from observation, interviews and record review on the audit day.
Normally the audit requires at least eight hours in the factory. “It
must be local auditors”, says Cindy Chan, “They know the culture and
language and can get beneath the surface. The factory management
normally treats Westerners to an excellent three-hour-lunch, then
chit-chat for a while; they won’t have the time to see anything shady
in the factory.” And Thommy Järlefelt, Managing Director of ICA
Global Sourcing, agrees: “Auditing is a local trade”.
ICA uses a scale ranging from good, acceptable, need for
improvement to unacceptable. If a factory falls into the unacceptable
category, it must improve before the next audit otherwise ICA will
discontinue business with that factory. This way, every factory gets a
second chance as long as they show their willingness for
improvement.
Consolidation, loyalty and cross section collaboration are
success factors
Embassy of Sweden 4(7) Beijing
Since they started the onsite auditing, about 750 supplier factories
have now been reduced to around 400, by rationalizing, reducing the
number of middlemen and local agents and taking control of
production facilities. This has created a stable and duly audited
factory base and ICA is able to grow its business with existing factory
base.
“You need to stick with the supplier”, says Cindy Chan, “You can’t expect much improvement would be achieved if you are constantly switching your suppliers.” Photo: ICA
In fact, growing with your suppliers is a key component of ICA’s CSR
work. “You need to stick with the supplier”, says Cindy Chan, “You
can’t expect much improvement would be achieved if you are
constantly switching your suppliers.” This implies not only checking
them, but also helping them to improve, through CSR training and
community activities for instance.
Also, CSR must permeate the whole organization. CSR assessment is
not only the work of auditors, every ICA representative has a role in
ensuring that CSR requirements are met. Assessment of suppliers
begins with checking social compliance. Best price is not their only
interest. “It has occurred that store shelves have remained empty
because we could not find a supplier that met our standards”, says
Maria Smith.
ICA’s CSR department in Sweden is a part of the Business
development section. This shows how ICA valuates these issues. The
CSR section is a support function for other departments. It is also
Embassy of Sweden 5(7) Beijing
crucial to have a clear commitment from management and a clear
strategy for the group.
Embassy of Sweden 6(7) Beijing
Benchmarking and streamlining for more impact
There are challenges both on the end-consumer side and on the
supplier side. Consumers often want products at lower prices, but
higher quality, which can be a tricky equation. In order to
successfully put demands on suppliers, you normally need a certain
volume. You have to be big enough to make a difference.
Consequently, brand collaboration may increase in importance.
“Together with others we are much stronger”, says Maria Smith, “the
more the merrier.”
One way of streamlining demands from many small and medium
sized clients is to use international standards. By benchmarking all
the social compliance standards on the market through the GSCP
(Global Social Compliance Programme), for instance, creating one
program that everyone aligns with, would be of benefit for all parties
involved. Retailers could probably reduce costs because they would
not have to audit every single factory.
International standardization would probably also alleviate “audit
fatigue”. Many different demands from many different clients may
cause quite a big burden on suppliers. Big suppliers often even have
designated staff to take care of auditors. There is a risk that suppliers
build a fake façade to handle client audits. “Unannounced audits are
an important tool to counteract such trends”, says Cindy Chan, “but
beware that unannounced audits do not build trust, and trust should
be the very foundation of your supplier relations.”
If documents presented seem too good to be true, they may be faked.
Documents must reflect what you reasonably can expect from that
specific supplier. Cindy Chan told a supplier during an audit that she
wanted to see the reality when a fake document was presented to her.
This was a revelation for the supplier, who thought that they would
be renounced if ICA found out what problems they actually had. As
“ICA wants assurance rather than insurance. We want to know the reality and help to make a difference”, says
Thommy Järlefelt, Managing Director of ICA Global Sourcing
Embassy of Sweden 7(7) Beijing
Thommy Järlefelt puts it: “ICA wants assurance rather than insurance.
We want to know the reality and help to make a difference”.
Send an e-mail to the editor.
The Embassy of Sweden’s CSR Centre
Corporate Responsibility News
The Embassy of Sweden in Beijing
ICA’s CSR recommendations to other sourcing companies:
• The earlier you start the better you will be in the future. Sooner or later the consumers will put demands.
• Combine commercial issues and CSR, they are not two different things. • Do your homework, you have to know what you are in for. That is probably the most
important thing before you start. What will you do and how will you do it? • Be present locally. Onsite dialogue is key, not just talking on the phone. Onsite support is
key. But you can’t have onsite support for all factories, it would be too expensive. Make a risk assessment.
• You have to check the checkers. If you are hiring third parties, make sure that they are reliable.
• Put up clear targets when you enter the market, e.g. “Everything should be audited by 2016” and measure progress.
• Management commitment is very important, locally and globally. Emphasize importance of working with CSR.
• When you face problems, don’t give up! You have to work long-term. • Have realistic expectations on your suppliers. If they show you a really good report it
probably means there is a problem with the factory. • Unannounced audits, if you want to make sure that the factory has improved. You cannot
always turn up unannounced though. Focus on maintaining long-term relations. You can prepare for an unannounced visit. Don’t start with unannounced audits.
• Encourage transparency and production of genuine records so that you can help your suppliers comply.